How Financial Aid Applications Work

Applying for a Loan

The package of financial aid from your college may include a loan. Beginning in 2010, all federal student loans are made directly from the Department of Education, not through private banks [source: FSA: Stafford Loans]. The amount of these loans is determined by the information on your FAFSA. Your parents can also receive loans to pay for your college costs through the government's PLUS program.

If you decide to use a federal Direct Loan, you will undergo a credit check. If you have an adverse credit history because of overdue debts or unpaid bills, you may still be eligible. You will need an endorser, which is someone who agrees to repay the loan if you do not.

As part of the loan application process, you will receive entrance counseling before the money is paid out. This information will help you to understand your obligations. It may be offered in person by your college, or you may complete the counseling online.

Next, you will have to fill out a Master Promissory Note (MPN). The MPN is a legal document in which you promise to repay your loan, along with any interest and fees, to the Department of Education. It will explain the terms and conditions of your loan. You can fill out the MPN online, but you must complete it in a single session, so make sure you have at least 30 minutes to devote to it and have gathered all the needed information [source: FSA: Master Promissory Note]. You will need to provide your employer's name and two references.

If you need to borrow more money than is offered through the federal programs, you can approach a private lender, such as a bank or credit union. The application process for private loans varies among lenders. Some banks let you apply online, and others require paper forms. You will fill out a private loan self-certification form. This affirms that you have been advised that free or lower-cost federal financial aid is available and that a private loan may reduce your eligibility for federal, state or college aid [source: FSA: Information for Financial Aid Professionals]. Once you are granted a private student loan, the bank will ask you to sign a promissory note accepting the terms of the loan and agreeing to repay it.

Student financial aid is a complicated subject, and the information below may help you further navigate the process.

Before You Borrow

Borrowing funds burdens you with a serious obligation, so you should always know what your responsibilities are before you take out a loan. Web sites such as the Project on Student Debt provide advice about borrowing [source: Project on Student Debt]. Another resource is the National Consumer Law Center's Student Loan Borrower Assistance Project, which offers information on legal rights [source: Student Loan Borrower Assistance].